All change: long-term success requires flexibility and co-operation

Companies, it could be argued, are at the centre of a never-ending battle. In one corner stand the customers, always wanting more bang for their buck. In another are the suppliers, who are seeking the best price available. This includes staff, who supply their labour. In the third corner are the shareholders. They are looking to keep as much value as possible once the other two groups have grabbed their share. And in the middle of all this are the managers, tasked with reconciling these competing forces.

The degree to which managers can satisfy these masters depends on the economic cycle. At times such as these – when economic activity is slowing and inflation is rising – it can be a big ask. But it is not just the business cycle that can change the relationship between companies and their customers, shareholders and suppliers. Long-term trends are equally important, with managers under constant pressure to ensure the big picture is not lost in the short-term push to hit targets.

For most companies, the primary focus is the customer. Thanks to globalisation and technology, the search for customers takes even small and medium-sized businesses around the world, often to emerging markets. “There is a rebalancing, with the economic centre moving from west to east. For many companies, the ability to rely on the domestic market is over,” says Kevin Sneader, managing partner for the UK and Ireland at McKinsey, the consultants.

From banks such as HSBC and Standard Chartered to Carrefour, the French retailer, companies of all shapes and sizes are now looking for new customers in emerging markets. This is far from easy – new business cultures and unfamiliar regulatory environments are among the hurdles that have to be overcome. However, with growth in the developed world slowing, most companies feel they have little choice.

These familiar names are not the only ones searching across the globe for new customers. Emerging-market-based companies are looking to the developed world, where their low-cost production techniques can enable them to undercut the more established opposition.

Consumers in the west are already used to buying cars from Korea’s Hyundai, and similar trends are being seen in other industries. In the mobile phone sector, HTC of Taiwan and Huawei of China will continue to challenge Apple and Nokia with low-cost smartphones.

Demands for – and from – employees are changing just as quickly. “There is a productivity challenge,” says Mr Sneader. “Companies need to do more with less and in developed markets need to rely more on productivity improvements than top-line growth.”

At the same time, companies need to ensure that they are attracting the right kind of staff. The so-called war for talent has been a feature of the employment market for many years, but with the population ageing rapidly in many developed countries, the competition is becoming more acute.

These days, attracting the right staff means providing the right sort of working conditions as much as the right sort of salaries. The PR Network, a London-based public relations agency, has taken an innovative approach. Rather than employing a large number of staff directly, it has a small London office and relies on a network of more than 500 freelancers. The freelancers get to work when and where they choose, while the company can service large clients such as MasterCard, the electronic payment network provider, and Deloitte, the professional services firm, with just a small office of six people. Such flexibility is likely to become increasingly important as workers start to exploit the dearth of available talent in some industries.

Companies’ relationship with the third group – the shareholders – is also changing. Investors were criticised in the wake of the financial crisis for not keeping a close enough eye on what their companies were doing. Since then there has been a push in many markets to force them to take a more active interest.

“Shareholders need to have a different view of their relationship with a company,” says Mr Sneader. “There is more pressure now on improving performance through active engagement.”

For their part, the companies are under pressure to become more accessible to investors, and to encourage investors to take a longer-term view of their prospects. For some businesses, such as Unilever, the consumer goods conglomerate, Ford, the US car maker, and Coca-Cola, the US soft drinks group, this has meant freeing themselves from the pressure to hit short-term targets by declining to give detailed financial guidance to analysts.

For others, it has meant a more fundamental reconsideration of their structure and the investment proposition that they offer.

In the US, large groups such as Fortune Brands, the drinks giant, Tyco, the engineering conglomerate, Kraft, the food business, and ConocoPhillips, the oil company, have unveiled plans to split into smaller units. In Korea, the traditional chaebol – the colossal family-controlled conglomerates based on a complex system of cross-shareholdings – are also under pressure to unwind themselves. Some, such as Samsung, the world’s biggest technology company, have already started to do so.

There is another long-term change facing companies. It involves a new, and less cohesive, group of interests that centre on the company’s impact on the environment, local communities and the wider supply chain. It falls under the banner of corporate social responsibility.

CSR has been around for some time, but according to Mr Sneader, attitudes are changing. “There is still a lot of box-ticking in CSR, but some companies are realising that, for example, environmentally friendly supply chains can be better supply chains,” he explains.

Marshalls, a UK-based supplier of building materials, has won plaudits for its progress in sustainability thanks to the rigorous attitude it takes to sourcing, distribution and reporting. In one instance, Marshalls went as far as to measure the carbon footprint of the camels it uses to transport raw materials in India.

It may be some time before companies embrace CSR for its own sake en masse, despite what politicians and environmentalists might wish for. But as the battle between customers, suppliers and shareholders becomes more intense, managers might well see CSR, and the warm corporate glow that it engenders, as an increasingly important tool in ensuring a happy balance between the three groups.

Case studies

The battle for customers – Casino and Carrefour in Brazil

The importance of finding new customers in emerging markets was illustrated this year when Casino and Carrefour, the two dominant French food retailers, went head to head over expansion into Brazil. Carrefour agreed a deal to merge its Brazilian stores with those of Pão de Açúcar, a leading local chain. Casino, which already owned a stake in Pão, objected, and when banks withdrew their support, the deal collapsed.

The battle for investors – Tyco splits itself up

Students of corporate history will already be familiar with attempts by Tyco, the US-based industrial conglomerate, to streamline itself. In 2007, it split into three groups – industrial, electronics and healthcare. Earlier this year the industrial arm announced plans for another three-way split. Ed Breen, the chief executive, told investors that the three companies “operate with very distinct business models, each with different capital investment needs and growth profiles”.

The battle for employees – Microsoft and Google raise salaries

Some of Silicon Valley’s biggest names have been raising salaries over the past 12 months as the battle for staff hots up. Last year, Google, the internet search business, increased salaries for all of its staff by 10 per cent, and increased total annual earnings for a group of top executives by 80 per cent. Microsoft, the technology company, has also taken action. In April it increased pay for all 90,000 of its employees, with a particular focus on software engineers.

The bigger picture – Marks & Spencer’s Plan A

Marks & Spencer is best known as a stalwart of the UK high street. But in recent years, the retailer has also been trying to make a name for itself in sustainability. Five years ago it launched “Plan A”, a set of 180 commitments that include making the company carbon neutral by 2012. In March, the company was awarded a Financial Times ArcelorMittal Boldness in Business Award for its efforts in this area.